ECON101: Principles of Microeconomics

Unit 1: Introduction to Economics: What Is It?Before we dive into the principles of microeconomics, we need to define
some of the major ideas that lie at the heart of economics. What, for
example, is “the economic way of thinking”? What do economists mean
when they throw around terms like “market structure” and “the invisible
hand”? This unit will identify and define these terms before addressing
the driving principle behind microeconomics: the idea that individuals
and firms (economic agents) make rational choices based on
self-interest. These decisions are necessary because all resources are
scarce – in other words, no good or item is infinitely available.
This unit will also introduce you to a number of economic models, the
assumptions and constraints associated with each, and the ways they help
us better understand real-life situations.

Unit 1 Time Advisory
This unit should take approximately 10.75 hours to complete.

☐ Subunit 1.1: 4 hours

☐ Subunit 1.2: 3.5 hours

☐ Subunit 1.3: 0.5 hours

☐ Assessments: 2.75 hours

Unit1 Learning Outcomes
Upon successful completion of this unit, the student will be able to:
- Think intuitively about economic problems.
- Identify how individual economic agents make rational choices given
scarce resources and know how to optimize the use of resources at
hand.
- Apply the concept of marginal analysis in order to make optimal
choices and identify whether the choices are “efficient” or
“equitable.”
- Demonstrate an understanding of some simplistic economic models
related to production, trade, and the circular flow of resources.

1.1 Individual Choice: The Core of Economics1.1.1 Scarce Resources, Choices, and Opportunity CostsNote: The concept of opportunity cost is critical to understanding
individual choice because you always have to give up something in order
to get another thing. In other words, the real cost of purchasing “good
A” is equal to the value of the next best alternative (“good B”) that
you give up in order to purchase “good A.” For example, what would you
rather be doing instead of studying this course? The task that you have
forgone in order to study economics is the opportunity cost of studying
economics.

Instructions: Read “The Economic Problem” to learn about the basic
problem of scarcity and the difference between "needs” and "wants.”
Next, read section 1 in chapter 1 of Principles of Microeconomics
to encounter the three fundamental questions that economists face
and to learn about “Opportunity Costs.” Go through the three
examples presented in the “Try It” section and note how eventually
every decision boils down to choosing between competing
alternatives.

Instructions: Please click on the above link to see how the author
relates ordinary examples from everyday life to reinforce the
concept of opportunity cost.

Reading this article should take approximately 30 minutes.

Note: Russell Roberts is a Professor of Economics at George Mason
University and a Research Fellow at Stanford University’s Hoover
Institution. He is the Features Editor of the Library of Economics
and Liberty and the host of EconTalk.

Terms of Use: Please respect the copyright and terms of use
displayed on the web pages above.

Instructions: The above link will bring you to the webpage of an
instructional video series on economics. Please click on the
“VoD” icon on the right hand side of the first topic, “Resources and
Scarcity.”

Watching this video and pausing to take notes should take
approximately 1 hour.

Note: This video is 28 minutes long. The website recommends that
serious students view the videos at least twice, taking notes the
second time around.

Terms of Use: Please respect the copyright and terms of use
displayed on the web pages above.

Instructions: This is an optional lecture and not a requirement of
the course. In this unit, you learned that scarce resources
underlie every economic decision that is made in society. You also
learned that because of these scarce resources, there are trade-offs
between alternate choices. In this guest lecture, Bjorn Lomborg
advances this idea by discussing some pressing issues that need to
be addressed. This talk should help you to identify “the economic
way of thinking” which will be elaborated upon in the next
subunit.

Instructions: Read these sections. Please take a moment to read
through the stated learning outcomes for this chapter of the text,
which you can find at the beginning of each section. These should be
your goals as you read through the chapter.
Reading these sections should take approximately 1 hour.
Terms of Use: The text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommerical-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the works original creator or licensee.

1.2 Economic ModelsNote: In this subunit, you will examine three introductory models that
economists use to analyze the world. These should show you how to
“think like an economist.”

Instructions: Read these sections. Take a moment to read through
the stated learning outcomes for this chapter of the text, which you
can find at the beginning of each section. These should be your
goals as you read through the chapter.
The first section of the chapter introduces you to the four factors
of production that are present in the economy: Labor, Capital,
Natural Resources, and Entrepreneurship. Using any two factors of
production, you can then learn to construct the Production
Possibility Frontier (PPF) in a two plane model. Note the economic
implications of the downward slope and the bowed-out shape of the
PPF curve. Also note the meaning of producing on the curve versus
inside the curve. Lastly, think about what it means to move along
the curve.
Reading these sections should take approximately 1 hour and 30
minutes.
Terms of Use: The text was adapted by The Saylor Foundation under a
[Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the works original creator or licensee.

1.2.2 Comparative Advantage vs. Absolute AdvantageNote: This model is an application of the Production Possibility
Frontier studied in the previous section, albeit in a global set-up.
The argument for international trade, specialization, comparative
advantage, and the resulting economic growth is brought to light here.
The mechanics of comparative advantage will reveal why it would benefit
a country to import goods it produces at home.

Instructions: Please read the ”Introductions” section and stop
before the “Excerpts.” This reading is only an introduction to the
topic; it will explain the underlying meaning of the model in a
theoretical way. We will formally study the model from a
mathematical perspective in the next reading.

Reading this article should take approximately 30 minutes.

About the link: The Library of Economics and Liberty is dedicated
to advancing the study of economics, markets, and liberty. It
offers a unique combination of resources for students, teachers,
researchers, and aficionados of economic thought.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Before reading the above link, please make sure you
remember the concept of Opportunity Cost since it is crucial to
understanding how Comparative Advantage is calculated.

Reading this article should take approximately 10 minutes.

Note: This article has been taken from the Internet Center for
Management and Business Administration.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Lecture: State University of New York at Oswego: Professor John
Kane’s Lecture Notes on ECON 101: “Chapter 2: Opportunity Costs”
Link: State University of New York at Oswego: Professor John Kane’s
Lecture Notes on ECON 101: “Chapter 2: Opportunity
Costs” (HTML)

Instructions: Please click on the above lecture to review all of
the topics we have covered thus far in the course.

Watching this lecture should take approximately 30 minutes.

Note: Principles of Microeconomics was taught by Professor John
Kane of the State University of New York at Oswego. Notes from
twenty lectures are available
here as ordinary Web pages
with graphics, as Flash videos with an audio narration, and as
PowerPoint presentations.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Please click on the Circular Flow tab to hear the
lecture on the Circular Flow Diagram. Once you are done, practice
drawing the Circular-Flow diagram on your own to test your
understanding of the interrelationship between the various sectors
of the economy.
Watching this lecture should take approximately 5 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the web pages above.

Reading: State University of New York at Oswego: Professor John
Kane’s Lecture Notes on ECON 101: “Chapter 4: Market System”
Link: State University of New York at Oswego: Professor John Kane’s
Lecture Notes on ECON 101: “Chapter 4: Market
System”
(HTML)

Instructions: When you click on the link above, you will be
directed to a webpage with a list of contents. Please click on
“Chapter 4” and read the HTML version of the lecture notes in their
entirety. Once you are done, practice drawing the Circular-Flow
diagram on your own to test your understanding of the
interrelationship between the various sectors of the economy.

Completing this assessment should take approximately 1 hour and 30
minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Please follow the link to get to the main page of
Econ100. Click on the “Quiz” tab on the left hand side menu and
then go to Chapter 1 to take the test. The quiz should be a
thorough assessment of your understanding of the material covered in
this unit.
Completing this assessment should take approximately 45 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Please follow the link to get to the main page of
Econ100. Click on the “Quiz” tab on the left hand side menu and
then go to Chapter 3 to take the test. Please attempt all four
levels of the quiz for a thorough assessment of your understanding
of the material covered in this unit.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.